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A professor who served on the board of a European software vendor was fined €60,000 for trading in the company’s shares during a closed period. The director made the transaction at a time when he was prohibited from doing so, leading to the country’s regulator issuing the sanction.
This anonymised case study demonstrates the importance of companies monitoring trades made by their stakeholders. It also highlights the importance of taking measures to inform these stakeholders of their responsibilities regarding the way they buy and sell financial products.
What is a closed period?
Article 19(11) of the Market Abuse Regulation (MAR) defines a closed period as a stretch of time during which persons discharging managerial responsibilities (PDMR) should not trade in the company’s stock, whether it is directly or indirectly, and whether it is on their own behalf or on behalf of a third party. This also applies to people closely associated (PCAs) with them, including spouses, dependent children or other relatives and associates.
The closed period is the 30 calendar days before the announcement of an interim financial report or year-end report. The reasoning behind the restrictions on PDMR transactions is that employees and board members at this level are likely to have access to inside information and be in a position to make decisions that affect the future of the organisation.
Background of the case
In the early 2020s, the software vendor announced the date on which it would deliver its interim financial report. This resulted in the instigation of a closed period for the 30 days ahead of that date.
However, with just over a week to go until the report went public, the director in question disposed of a number of company shares despite the restrictions being in place.
Not only was this a contravention of MAR, but the same director was also found to have disposed of company shares previously without informing the organisation or the regulator.
What happened next?
The regulator found the director guilty of trading during the closed period and of missing the deadline for informing it of the additional share disposal. As such, it fined the man €60,000 for his transgression.
In summing up, a spokesperson for the regulator highlighted the importance of PDMRs and other insiders complying with MAR and exercising care and diligence with their trades. However, it was concluded that there was no evidence the director had attempted to commit insider trading.
What can we learn from this case?
Although in this particular situation, it was concluded that the man did not dispose of the shares due to inside information, the suspected insider dealing put the organisation’s reputation at risk. PDMRs are in a privileged position where they could know the company’s financial results before the market and, as such, could buy or sell shares, knowing that the price will move when the information becomes public. This can be disastrous not only for the individual but also for the organisation.
By keeping track of PDMR transactions, companies can ensure compliance with relevant legislation on insider trading, inspire more confidence and attract investors.
How TradeLog helps
TradeLog features a pre-clearance process that employees use to gain permission to make trades. By requiring them to use the platform, you can monitor their personal trades and prevent them from taking part in restricted transactions such as those during a closed period. TradeLog allows you to set the parameters for acceptable trading and monitor employee personal accounts to ensure they do not commit market abuse.
Request a demonstration of TradeLog for your company today.
